Examination of Witnesses (Questions 20-39)
RT HON
LORD MANDELSON
14 JANUARY 2009
Q20 Mr Hoyle: We have mixed a lot
up, but what we are saying is hundreds of millions is needed to
ensure that we invest in modern machinery and plant in the future
of Royal Mail. What we are saying is we are taking the pension
fund out, that liability is going to remain with the taxpayer,
in order to acquire interest from foreign companies who will take
a minority stake, and I presume a minority stake is 30%?
Lord Mandelson: I do not think
you can assume anything at this stage. This is something that
we need to discuss both with the possible candidates but also
we will take a view and I suspect the House of Commons will take
a view on what ceiling it wants to place.
Q21 Mr Hoyle: How can you say it
is a minority stake if you do not know what the minority is?
Lord Mandelson: Because it will
not go above 49.
Q22 Mr Hoyle: So I could well be
right, it could be 30%?
Lord Mandelson: It could be. It
could be 25%, it might be 33%.
Q23 Mr Hoyle: What we are saying
is we need hundreds of millions, I understand that, but can you
tell us—
Lord Mandelson: Hundreds of millions
which at the moment are being drained from the revenues of the
Royal Mail into—
Q24 Mr Hoyle: It might be helpful
if I finish the question rather than you prejudge it.
Lord Mandelson: ---servicing the
deficit in the pension.
Q25 Mr Hoyle: You are having a good
run, but please let me finish the question. It will be helpful
to both of us because I think we both want to be constructive
on how we help Royal Mail, help the British taxpayer and see how
we can go forward. I agree with you that hundreds of millions
are needed, but the fact is they were given a grant of £1.2
billion of which only £600 million has been spent and £600
million remains unspent within Royal Mail for modernisation.
Lord Mandelson: Why?
Q26 Mr Hoyle: Just bear with me.
What we can say is that we have money there. The strange thing
is the liability for the pension remains with the taxpayer. We
have opened up the market and said ahead of everybody else in
Europe, "Come to the UK and we will allow you to bid for
bulk mail contracts where the profit is and we will deliver it—Royal
Mail—by the Universal Service Obligation, we will deliver
your mail under that access agreement". The fact is that
the taxpayer is subsidising every letter that is giving money
to foreign shareholders and foreign governments because we are
losing on every letter we deliver under that access agreement.
Surely the best way forward is to actually renegotiate the access
agreement, make sure that we make a profit on every letter we
deliver rather than subsidising foreign shareholders and giving
them profits, in which case Royal Mail becomes profitable, and
we ought to spend the £600 million they are already sitting
on. If we are only talking about hundreds of millions, why do
we want to give somebody 30% of the company? We have already given
them the business, please do not follow that by giving them a
stake in Royal Mail. Surely the answer ought to be let us make
a profit on delivering other people's mail. That is the way that
we can invest in Royal Mail, that is the way Royal Mail can have
a future, and that ensures there is real competition in the market.
The other way, of course, is to say to these foreign companies,
"You also should have a Universal Service Obligation"
and then we are on an equal footing. The fact is they are cherry-picking
at the expense of our company and our taxpayers are subsidising
it. It is unacceptable.
Lord Mandelson: We are talking
about a single minority stakeholder partner, we are not talking
about a range of foreign companies.
Q27 Mr Hoyle: One foreign company
then.
Lord Mandelson: Had it occurred
to you in your analysis that should this partner be, for example,
the Dutch postal operator TNT that would at a stroke, should they
become the minority partner, eliminate the very competition to
the Royal Mail in our market that you are taking exception to.
Q28 Mr Hoyle: No, it would not. Well,
it would do but would only take one of the competitors.
Lord Mandelson: It is quite a
big competitor.
Q29 Mr Hoyle: It is one of the competitors.
What we are saying is that Deutsche Post would still have the
same access agreement and it would allow TNT and ourselves to
also lose money on the delivery. It seems an absurd situation.
Why do we not put the money in or spend the money we have got
to modernise and charge the going rate to TNT? Why should we want
to subsidise their letters?
Lord Mandelson: What you want
us to do—
Q30 Mr Hoyle: Is not subsidise.
Lord Mandelson: --- is to fork
out taxpayers' money to invest hand over fist in the Royal Mail
as we have been trying to do for the last 10 years without, as
you acknowledge, success, because as you readily acknowledge £600
million of investment that the Government has made available has
not been taken up for the very modernisation which is vital to
the survival of the Royal Mail as a commercial concern. Something
is going wrong. Something has been missing during the last 10
years, during the time we have been in government, that despite
our best efforts, despite our commitment to the Royal Mail, despite
all we have tried to do to invest, turn it round, raise efficiency,
has not been as successful as we would have liked. I think that
the missing ingredient has not only been the additional funds
for investment that the Royal Mail will need increasingly in the
future, not less in the future, but also difference to its management,
its culture, the ethos of the company, including its industrial
relations. If whilst retaining Royal Mail firmly in the public
sector, as will happen, we can bring about some of those other
much needed changes I think we are more likely to see that sum
of money which you have described, which has so far gone wasted
in investment, in modernisation of the Royal Mail, being better
picked up and used for the benefit of the company, the people
and the companies it is serving. Now, you might say that all the
Royal Mail needs is for the liberalisation, to the extent that
it has occurred, to be reversed, for the competition to Royal
Mail to be withdrawn. I am not an unqualified admirer of all aspects
of the regulation and liberalisation of this market, I have got
my own ideas about that, but I think in the course of transferring
responsibility from Postcomm to Ofcom it would be desirable to
take a look and possibly make some adjustments in that. Simply
to say that removing the competition alone is going to make all
the difference that we want to see to the Royal Mail is, I am
afraid, unsupportable.
Q31 Mr Hoyle: That is absolutely
not what I said.
Lord Mandelson: You were nearly
at that conclusion.
Q32 Mr Hoyle: No. You are taking
it completely out of context. What I am saying is, and you can
play it any way you want, and I will spell it out quite clearly
so we are both absolutely sure what we mean, you have competition
there, that is not a problem, but what you should do is ensure
that you make a profit on the delivery of your competitors' mail.
What we should not be doing is using the British taxpayer to subsidise
foreign companies and foreign governments. What you are saying
is that we should give a stake of our company to a foreign government.
I do not believe in that, I do not think it is the way forward.
What I am saying is we should make a profit on the mail that we
deliver for our competitors. That is how we reinvest in Royal
Mail and that is how Royal Mail will have a healthy future. The
only reason it went wrong was when liberalisation came in ahead
of the rest of Europe and we put an access agreement in and there
was an unhealthy situation where you lose money on every letter
you deliver. It was an absolute nonsense to begin with, we have
not addressed it since, and that is the part that needs to be
addressed. Why do we not address that first and see if that works?
That is the way forward, that is what I am saying. I do believe
in competition.
Lord Mandelson: There seems to
be more common ground between us than I originally thought.
Q33 Mr Hoyle: But of course, with
these new Socialist principles you have brought to us since you
came back I have got to be an admirer.
Lord Mandelson: Even New Labour
has to keep rethinking and modernising.
Q34 Mr Hoyle: We are even thinking
you are old Labour these days!
Lord Mandelson: The point I am
making is this: I do not know what the foreign government is that
you think is being subsidised.
Q35 Mr Hoyle: TNT and Deutsche Post
both have stakes in the companies, do they not?
Lord Mandelson: I do not think
the German or Dutch Governments would see the operation of their
postal operators and their relationships to our markets as subsidising
those, but put that aside for one moment.
Q36 Mr Hoyle: They get a take of
the profits.
Lord Mandelson: The reason why
I think there is greater common ground between us is I happen
to believe and agree that if you are going to open a market, if
you are going to liberalise it and open it to greater competition,
then the existing player has to be in a position to take on that
competition. It has to have levels of efficiency, productivity,
introduction of technology that enables it to compete with the
new players who are being admitted to the market. I regret that
the modernisation and increased productivity and efficiency of
the Royal Mail has not gone ahead as speedily as we would have
liked which would have better equipped it to take on that competition
in a liberalised market, which is why I think these things have
to go in tandem. We will not go in tandem or get that stronger,
more efficient Royal Mail without the investment, the introduction
of the technology, the reform of working practices which everyone,
including the CWU, the union, accepts because they say the status
quo is not an option as well. They are not dyed in the wool people
who want to keep the Royal Mail as it is, they accept that change
and modernisation must come about. All I am saying is we need
help in bringing about that change, in my view as Hooper has argued
from a minority stakeholder, another postal operator with experience
and a proven track record in turning round their own postal operation
and making them competitive players in the European and international
markets. If you look at the Swedish or Danish experiences, but
I could point to other areas, in the international postal market
you need some team playing, some alliances built between postal
operators. That is the trend, that is the way in which the international
market is going. If we want to see Royal Mail becoming a real
serious player in that international market underpinning its revenues,
its profits and its commercial success then, in my view, we have
got to see it teaming up with another postal operator in order
to deploy that strength in the international market from its starting
point and its finishing point of remaining in the public sector.
That is the unchanging condition in my view because, as I have
said to you, I do not think it would be easy or practical to sustain
the Universal Service Obligation with a Royal Mail that had been
privatised because the commercial pressures and profit-making
pressures in the company would be too great to sustain the USO.
That is my own view. No doubt another government of another political
colour would take a different and respectable view, but it is
not one I share.
Mr Hoyle: I think you have touched on
the point that we believe, and quite rightly, in the Universal
Service Obligation. We believe that wherever you live in the UK
your mail will be delivered and there is only one company that
will do that and there is only one company that has got the USO,
that is Royal Mail, therefore you start off on a different playing
field, you are at a complete disadvantage. We understand why we
do that and it is something we are committed to, there is not
a problem in that, but in that case why do we believe that we
should deliver other people's mail under the USO at a loss? Why
are you not saying to me, "I'm going to renegotiate it. I'm
going to make sure that they paying the going rate and that profit
will go into investment"?
Chairman: I think we are getting into
a bit of a circle here.
Q37 Mr Hoyle: Do we agree on that,
that is the question?
Lord Mandelson: I am not saying
that I am not going to review it.
Q38 Mr Hoyle: Are you saying you
are going to do it then?
Lord Mandelson: I am not saying
that I am not going to look again at how the liberalisation has
worked and how the regulator has performed. The regulator, Postcomm,
in a sense has had two competing responsibilities. One is to uphold
the USO, the six day a week delivery to every address in the country
at a single price, and its other responsibility has been to introduce
competition, to oversee liberalisation of the market. I think
there has been a tension between those two responsibilities, those
two aims, and we need to look at whether that tension has been
managed in quite the ideal way we would like to see it. I certainly
believe that to withstand that competition, to become a real strong
player in any liberalised market, the Royal Mail has to be strengthened
first. It needs to be modernised, a further introduction of changes
in technology and working practices, and that is my priority,
which is why I am so keen on implementing the Hooper Review recommendations
as a whole.
Q39 Mr Hoyle: I think the things
we do agree on are we believe in modernisation, we believe in
a strong future for Royal Mail and we believe in it making a profit
for the taxpayer. We absolutely agree on those. The only thing
we disagree on is how we achieve it. My way to achieve it is to
stop subsidising foreign companies and those foreign companies
will pay the going rate to ensure that everybody's mail is delivered,
that Grandma Smith in Chorley will get her mail delivered in the
way she always had and that will continue.
Lord Mandelson: Whilst this Government
is in office I can assure you Grandma Smith in Chorley will continue
to receive her mail unfailingly. I am sorry, I just have to point
out, Chairman, if it were as simple as Mr Hoyle suggests I think
we would have achieved what he has sought to create during the
last 10 years of the Labour Government, but we have not. We have
not and there still remains £600 million of unspent investment—
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